As South Africa approaches the annual budget speech, Saica's head for tax advocacy and administrative law Somaya Khaki explores how the future of tax compliance is being reshaped by a narrowing revenue base and shifting enforcement priorities.
While there is often discussion about potential tax increases as South Africa's annual budget speech approaches, given the events following last year's proposed VAT rate increase, as well as a significantly enlarged tax base, the focus has shifted elsewhere.
Tax figures for 2024/25 provide evidence of how stretched the current tax base is, with personal income tax contributing about 40% of total revenues, while corporate tax contributes 17% and VAT 25%. This narrow base leaves minimal room for maneuver.
In a low-growth economy like ours, enforcement as opposed to expansion seems to be a more viable option with more focused and direct enforcement efforts coupled with a more concerted effort to facilitate 'voluntary' compliance.
Modernization to facilitate compliance
Stepping up its 'voluntary' compliance drive, the South African Revenue Service (SARS) has expanded its modernization efforts across different tax types. 2019 saw the initial introduction of auto assessment for individual taxpayers, which was significantly expanded in 2020 – effectively accelerated due to the COVID-19 pandemic (as were other modernization plans).
SARS is also increasingly relying on the use of artificial intelligence (AI) to facilitate risk-driven verification and audits to identify potential tax evasion or misinterpretation of the law.
However, it is not without its challenges. The use of AI in verification and audit has contributed to many taxpayers receiving inappropriate requests for information, as well as requests unrelated to taxpayers' specific circumstances, putting some taxpayers at real risk of being incorrectly assessed – resulting in unnecessary disputes. Some of which may take months or even years to resolve.
Due to the risk engine flagging many returns, the outstanding verifications have also exceeded the capacity of staff to review – resulting in SARS seeking third parties to assist with verifications and audits. In many cases, refunds are included and are not paid until verification or dispute is finalized. While SARS may argue that in most cases, the results through the use of AI are assisting in tackling fraud and evasion, for those honest, compliant taxpayers who have unknowingly been caught in the 'web', these statistics bring no comfort (some are at risk of closing their business due to cash flow issues because of it).
Furthermore, the ultimate plan is increased third-party reporting requirements with greater pre-population and cross-verification – the intention being that eventually the tax 'just happens' for millions of South African taxpayers. Third party reporting requirements, although well-intentioned, have placed additional compliance burdens on relevant third parties, resulting in additional costs to comply.
Debt recovery as a more direct enforcement mechanism
SARS currently has outstanding undisputed tax debts of over R500 billion. From April 2025 to the end of January 2026, SARS has collected about R71 billion of undisputed debt, but it appears this will fall short of its current target. To assist in this collection campaign, SARS hired additional debt collectors – both third party debt collectors as well as temporary SARS employees.
The move signals a shift from passive compliance to active pursuit of outstanding tax debt. In addition, SARS, in agreement with recognized control bodies, implemented an accelerated settlement agreement late last year with an application deadline of 31 December. Our understanding is that this process did not yield the desired results. It is unclear whether this program will be extended or to what extent undisputed loan balances are reduced as a result.
budget proposal
National Treasury has, over the past few years, allocated billions to SARS' modernization and compliance drive, with a focus on debt collection capacity, technology modernization and enhanced audit and verification.
SARS recently released its white paper on SARS Modernization 3.0 – setting out its plan to build a smart digital tax administration platform powered by data science and AI that fosters trust, efficiency and transparency, revolutionizes taxpayer and merchant engagement, and promotes voluntary compliance while strengthening enforcement capacity. At its core is the assumption that most taxpayers are honest and that modernization will result in decisive enforcement against willful non-compliance. Thus, we are likely to see additional significant budget allocations to facilitate this.
From a taxpayer perspective, SARS's future plans indicate a tougher compliance environment, in which errors are detected more quickly, and outstanding debts are pursued more readily. The emphasis is shifting from raising tax rates to ensuring that every rand already owed is collected.
We hope that by the conclusion of the Modernization 3.0 journey, we will see a tax system where honest taxpayers will experience simpler, faster and more seamless compliance, while willful tax evaders will be decisively identified and held accountable. Thus, ensuring that the burden of enforcement falls only on those who choose not to play by the rules.
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